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Many retirees count down the days until they are eligible for Social Security benefits.
But that age could change as lawmakers look to improve the program’s financial outlook.
Social Security’s trust funds are running low. Based on the most recent projections, just 79% of promised benefits will be payable by 2035.
That has prompted Washington lawmakers and Social Security experts to contemplate how to restore the program’s solvency for current and future beneficiaries.
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One change could be raising the age when workers become eligible for their full benefits.
The last time sweeping changes were made to the program was in 1983 under President Ronald Reagan. Like now, the program’s long-term solvency was then in question.
That legislation increased the full retirement age to 67, from 65, over 22 years, a change that is still getting phased in today.
New Congressional research takes a look at how raising the full retirement age again could work.
Generally, mandating a higher threshold could help prompt people to work longer, delay claiming benefits and receive monthly checks for a shorter amount of time compared to current rules, the report found.
But there could be some unforeseen consequences to such a change.
How current claiming rules work
Current Social Security rules allow workers to claim retirement benefits starting at age 62, or what’s known as the early eligibility age. Those payments are reduced in exchange for claiming early.
Workers get their full benefits if they wait until their full retirement age.
For those who become eligible for retirement benefits in 2021, that age is 66 years and 10 months.
By waiting to claim benefits up until age 70, retirees can get the biggest monthly benefit checks available to them.
Workers with a full retirement age of 66 get a 32% increase to their monthly benefits if they wait until 70, while those with a full retirement age of 67 stand to get a 24% increase if they hold out that long.
Yet many still claim early, despite the incentive to wait until full retirement age or later.
In 2019, 32.6% of newly retired beneficiaries were 62, the largest group of first-time claimants. That was followed by 25.3% who were 66 and 12.6% who were 65. Just 7.4% were age 70 or older.
What may happen if the full retirement age goes up
As the full retirement age gradually increases to 67, the early eligibility age of 62 does not change, according to today’s rules.
That results in larger benefit reductions for those who claim benefits between 62 and their full retirement age, the Congressional report found.
If the full retirement age was pushed higher, there could be adjustments to prevent those who claim earlier from getting even lower benefits.
For example, if the full retirement age increases to 69 from 67 and at the same time the early eligibility age remains at 62, monthly benefits claimed at that age would see an even bigger actuarial reduction — from 30% to 40%, according to the report.
Meanwhile, the delayed benefit credit for waiting to claim until age 70 would drop to 8% from 24%.
One way to reduce the effect of claiming early would be to also raise the early eligibility age. But that would create difficulties for workers who are unable to work between 62 and the new age at which they would be eligible for benefits, the report said.
Raising the full retirement age on its own also comes with a host of other concerns. While life expectancies have increased and older workers’ health and job prospects generally have improved, that is not true across the board.
As a result, low-wage and less educated workers could be put in a vulnerable spot. The change could also prompt more people to try to claim Social Security disability benefits, which would further stress the system’s solvency.
That issue could be resolved by putting a minimum benefit in place at 62, said Jason Fichtner, a fellow at the Bipartisan Policy Center who previously worked at the Social Security Administration. That would guarantee early claimants a certain amount above the federal poverty level.
Changes on the horizon
U.S. President-elect Joe Biden delivers a speech at his transition headquarters in Wilmington, Delaware, on Dec. 28, 2020.
Jonathan Ernst | Reuters
Right now, there are no concrete plans to raise the retirement age, or otherwise change Social Security.
But efforts to strengthen the system could be coming under President-elect Joe Biden.
Biden’s campaign platform calls for Social Security reform, but does not call for raising the retirement age. Advocates for preserving Social Security benefits are opposed to such a change because it amounts to a benefit cut.
Yet as people live longer that could force a change, according to Fichtner.
“If longevity increases, if we don’t increase the retirement age, then by default we are giving enhanced benefits or greater benefits than what’s intended,” Fichtner said.
For example, if benefits were adjusted according to today’s life spans, the retirement age would be 70, he said.
“If we continue to have increases in longevity, the Social Security retirement age is probably going to have to increase to account for that,” Fichtner said.
